Spreadex Market Update
Fed’s Waller Pushes Back Against Fed Pivot – USD Remains Vulnerable
The main focus point for traders as the new week gets underway is the weakness we’ve seen in USD. The Dollar fell sharply last week as softer-than-forecast US CPI was taken by some as signalling a likely turning point for the Fed. With traders now pricing in a smaller hike in December, anticipating that we have seen the peak in inflation, USD has come under heavy selling pressure.
The desire to call a top in the Dollar rally has been evident since early summer when USD bears were derailed by the August bounce back in CPI, following a weaker reading in July. Worth keeping that scenario in mind given that we’ve only had one weaker inflation reading. Fed’s Waller touched on this point over the weekend, noting that it will take more than just one CPI report to change the Fed’s approach.
Key Factors for Today
- USD muted on the back of heavy selling last week – vulnerable to further losses
- Equities pause as fresh directional catalysts awaited
- Quiet start in FX – traders look to key US data and G20 this week
- Metals and oil rally paused for now
Coming Up
- EUR – Eurozone Industrial sentiment
- CHF – SNB Chairman Jordan speaks
- USD – Fed’s Brainard speaks
Equities Poised for Fresh Gains Following Rally Last Week
Equities markets enjoyed sizeable gains last week amidst the drop in the US Dollar. Risk markets will be looking to capitalise on the breakout moves we saw last week if USD stays under pressure this week. Focus will also be on the latest news coming out of China. Biden and Xi are due to meet today ahead of the G20 summit getting underway this week in Indonesia. Any encouraging headlines regarding potential Chinese re-opening should further
help lift risk sentiment in equities markets.
Risk FX Bulls Hoping for Further USD Losses
In FX, we’re seeing quite and even start today with little standing out in the way of headline moves. USD is seeing a better bid though, on the back of the heavy losses suffered last week, the demand is likely temporary and the Dollar remains vulnerable to further moves lower. If seen this week, risk currencies should continue to improve across the week. Keep an eye on China headlines also which should add further support for commodity currencies. Any fresh moves higher in risk assets likely to keep safe-haven currencies pressured lower across the week.
Metals & Oil See Quietly Positive Start
In the metals and commodities space, both gold and silver were seen breaking out last week. A better tone to USD as we start the new week has seen the metals rally pause for now. However, the outlook remains skewed in favour of further gains this week while USD stays pressured. Will likely take an upside surprise in US retail sales this week to derail this view. Crude prices are starting the week in the green though flows are very quiet for now.
Crude futures rallied last week amidst USD weakness and positive chatter around China and for now, the bias is in favour of a continuation north.
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